Saving For Retirement

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Baldwin NY Tax Preparation service Pat Tax Inc. and Patrick White, Enrolled Agent . Please feel free to contact us with any questions or concerns.

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Traditional IRA

A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Any individual can set up a traditional IRA if he or she receives taxable compensation during the year and is not age 70½ by the end of the year. An individual can have a traditional IRA even if covered by
an employer-sponsored retirement plan. However, the deductible amount of contributions to a traditional IRA may be phased out.

Contribution limit. Contributions to IRAs are limited to the lesser of the individual’s compensation (or spouse’s compensation under a spousal IRA), or $5,500 ($6,500 age 50 or older).
spousal IRA. If both spouses have compensation, each can set up a separate IRA. Spouses cannot participate in the same IRA. If Married Filing Jointly, and
one spouse’s compensation is less than the contribution limit, the lower-income spouse can use the compensation of the other spouse to qualify.
SEP IRA. A SEP is a traditional IRA with different per year contribution limits. An employer (or self employed individual) makes deductible contributions to a traditional IRA on behalf of the employee (or self-employed individual). Distributions are generally subject to the same rules that apply to traditional
IRAs.

Read 2016 Saving for Retirement Here

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Prohibited Transactions Involving IRAs

Penalties apply when IRA funds are used in prohibited transactions. A prohibited transaction is any improper use of traditional IRA funds by the participant, the beneficiary, or a disqualified person. The following are examples of prohibited transactions.

Borrowing money from an IRA.
Selling property to an IRA.
Receiving unreasonable compensation for managing an IRA.
Using an IRA as security for a loan.
Buying property for personal use (present or future) with IRA funds.

Read 2016 Saving for Retirement Here

Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Saving For College

Custodial Accounts (UTMA/UGMA)
Assets in a custodial account belong to the minor. A custodian, usually an adult relative, controls the assets until the minor reaches the age set by state law (21 in most states).
Assets in a custodial account can be used to pay for education expenses for the minor.

Savings Bond Interest Exclusion
Exclusion Rules

Interest from qualified savings bonds redeemed by the taxpayer can be excluded from income if:

The taxpayer paid qualified education expenses during the year for the taxpayer, spouse, or a dependent claimed on the taxpayer’s return.
Filing status is not Married Filing Separate.
If proceeds from the redemption (interest and principal) are more than adjusted qualified education expenses, only a percentage of the interest is excludable.
Example: Marty redeemed qualified bonds for $10,000, including accrued interest of $5,500. He paid $8,000 of qualified education expenses during the year. His excludable interest is:

$ 5,500 Interest X $8,000 Qualified Expenses/$10,000 Redemption Proceeds=$4,400 Tax Free Interest

Income Limit
The exclusion is limited by adjusted gross income. Check with your tax preparer for income limitations.

Read 2016 Saving for College Here

Qualified Savings Bonds

Series EE bonds issued after 1989 and Series I bonds.
Issued to a person who was age 24 before the bond’s issue date. The issue date is the first day of the month in which the bond was purchased (for example, a bond purchased on May 25 has a May 1 issue date). The issue date is printed on the front of the bond.
Issued in the name of the taxpayer and/or spouse. There can be no other co-owners, including the taxpayer’s child. The bond can have a pay‑on-death (POD) beneficiary, including a child.

Qualified Education Expenses

Tuition and fees required for enrollment or attendance at an eligible educational institution. Qualified expenses do not include courses involving sports, games, or hobbies, unless part of the student’s degree program.
Contributions to a qualified tuition program.
Contributions to a Coverdell education savings account.

Qualified Tuition Plans (529 Plans) & Educational Savings Accounts (ESAs)

QTP and ESA Tax Benefits
Contributions to a QTP or ESA are not deductible. Earnings accumulate tax free. Distributions are not taxable if less than the beneficiary’s adjusted qualified education
expenses in the year of distribution. Contributors can contribute to both a QTP and an ESA in the same year for the same designated beneficiary.

Read 2016 Saving for College Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

College Financial Aid Planning

Individuals who want to attend college but cannot afford the costs outright must find alternative funding through various types of financial aid. Many factors affect eligibility for federal financial aid; therefore, all students should apply for financial aid every year even if they think they do not otherwise qualify.

Read College Financial Aid Planning Here

FAFSA
The Free Application for Federal Student Aid (FAFSA) is the first step in the financial aid process. Students use the FAFSA to apply for federal student aid, such as grants, loans, and work-study. The FAFSA must be submitted for each year the student wants financial aid.

Income Tax Return
If the student (or parents) needs to file a 2015 income tax return with the IRS, it is recommended that it is completed before filling out the FAFSA.

Expected Family Contribution
The questions on the FAFSA are required to calculate the student’s Expected Family Contribution (EFC). The EFC measures the student’s family’s financial strength and is used to determine the student’s eligibility for federal student aid. The EFC is split between an expected amount contributed from the student (usually more) and an expected amount
being contributed from the parents.

Read College Financial Aid Planning Here

Student Aid Report
A student’s EFC will be listed on their Student Aid Report (SAR). The SAR summarizes the information submitted on the student’s FAFSA.

Financial Need
Financial need is the difference between the EFC and the college’s cost of attendance (which can include living expenses), as determined by the college. The college will use the student’s EFC to prepare a financial aid package to help meet financial need.

Read College Financial Aid Planning Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Financial Planning Guide

Personal Financial Planning

Budgeting-Steps to manage income and expenses include the following.

Identify monthly outflows as living expenses, savings, and discretionary.
Eliminate unnecessary expenses from the discretionary category. If further cuts need to be made, reduce living expenses by obtaining a less expensive auto or home. Reduce savings as a last resort. Track income and expenses monthly and review every six months.
Establish an emergency fund equal to six months of income saved.
Save on private mortgage insurance by putting at least 20% down on a home mortgage

Read Financial Planning Guide Here

Education Funding-Several tax advantages are available to help save for education expenses.

Savings bond interest may be tax free if used for qualified education expenses.
Coverdell education savings accounts (ESAs) provide tax-deferred growth and tax-free distributions for qualified education expenses.
Qualified Tuition Programs (529 plans) provide tax free distributions for qualified tuition expenses.
A gift of low-basis stock allows the individual’s child to sell the stock and use the proceeds to fund education expenses. This is beneficial when the individual is
in a higher tax bracket and the student is in a lower tax bracket.
Roth IRAs can be used as a savings vehicle for education purposes. Contributions are removed from a Roth IRA without tax or penalty. Parents and grandparents fund the Roth IRA with the intention of removing the contribution and gifting that amount to the student. If the student does not go to college, or has the costs covered by other means, the contributions can stay in the Roth IRA without concern for tax or penalty
.Cash-value life insurance can also be used as a funding mechanism for college expenses.

Read Financial Planning Guide Here

Begin With The End In Mind-Tax Planning 2016 and Beyond

Tax E Man4 — Tax Consultation Preparation and Representation

“Begin with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”

Steven Covey Habit 2: The 7 Habits of Highly Effective People

In educator and successful businessman Dr. Steven Covey’s seminal work on self-empowerment, “The Seven Habits of Highly Effective People”, he points out in Habit 2 the importance of creating your Personal Mission Statement. The Mission Statement focuses on what you want to be and do. It is your plan for success. It puts your goals in focus, and moves your ideas into the real world.

The mission of tax planning should serve a similar purpose. Tax planning with your tax professional should reflect short and long term goals of you, your family and/or business. It should serve as a roadmap on reaching your goals based on a firm educational foundation and tools to monitor plan progress. Tools to avoid pitfalls and minimize surprises.

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It was with this in mind that the Tax E Man Blog compiled a category on Tax Planning. Tools and topics include

Financial Planning Guide
College Financial Aid Planning
Saving for College
Moving Out Worksheet
Saving for Retirement
Early Retirement Distributions
Newlywed Tax Tips
Pension Income Planning
Social Security and Medicare
Estate Planning, Wills, Probate, and Transfer of Assets

Pat Tax Inc. and Enrolled Agent Patrick White are available to answer questions or concerns and to help in customizing your Tax Plan. Tax Planning Tool and Topic blogs will appear beginning May 1, 2016 and will remain available under the Tax Planning category.

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The Tax E Man Blog, along with our website http://www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

Taxpayers Who Receive an IRS Notice

Read Taxpayers Who Receive an IRS Notice Here

Tips for Taxpayers Who Receive an IRS Notice
Receiving a notice from the Internal Revenue Service is usually no cause for alarm. Every year the IRS sends millions of letters and notices to taxpayers. In the event one shows up in the mailbox, here are ten things you should know.

Don’t panic. Many of these letters can be dealt with very simply.
Don’t ignore it. Most of these letters have a “reply by” date. Inaction can lead to additional interest and penalties or more aggressive action from the IRS.
Call your tax professional. Your tax professional is available to help you, is familiar with your situation, and has experience dealing with the IRS. Utilize his or her expertise. He or she will generally want to see a copy of the letter to determine the next course of action. Some letters can be resolved simply by having you contact the IRS directly. Other, more complicated issues may require you to sign Form 2848, power of Attorney and Declaration of Representative, to allow your tax professional to deal with the IRS on your behalf.
There are a number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account, or request additional information. The notice you receive normally covers a very specific issue about your account.
Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
If you receive a notice about a correction to your tax return, you should review the correspondence and compare it with the information on your return.
If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
If you do not agree with the correction the IRS made, it is important that you respond as requested. Respond to the IRS in writing to explain why you disagree. Be courteous and respectful. Include any documents and information you wish the IRS to consider,
along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS.
Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. When you call, have a copy of your tax return and the correspondence available.
Keep copies of any correspondence with your tax records. As with any tax issue, contact your tax professional to help you navigate your own unique situation.

Read Taxpayers Who Receive an IRS Notice Here

Services We Provide Include
Income Tax Preparation for individuals and small businesses
Electronic filing of all Federal and State returns with direct deposit of refunds
Scheduled electronic payment of balance due
Income Tax Consulting
IRS Tax Representation
Preparation of Delinquent Tax Returns
Amended Tax Returns

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Identity Theft and Your Taxes

Identity Theft and Your Taxes

Your identity and money can be stolen in a tax-related scam via email (“phishing”), fax, phone, or letters. Some recent examples of identity theft scams are:

Refund scam. A bogus email, claiming to come from the IRS, tells you that you are eligible to receive a tax refund for a given amount if you just follow the instructions
in the email.
Inherited funds, lottery winnings, and cash consignment scams. A bogus email, claiming to come from the U.S. Department of the Treasury, notifies you that you
will receive millions of dollars if you follow the instructions in the email. This may be a multi-step scheme that includes instructions for you to deposit taxes on
the funds before they can be paid out or the issuance of a phony check on which you must pay 10% tax before the check can be deposited.
EFTPS scam. A bogus email, claiming to come from the IRS, contains a realistic-looking screenshot of the IRS website with a message about fraud attempts regarding your bank account. The email states that the bank account can be unblocked if you just click a link and provide information. EIN scam. A bogus fax, claiming to be from the IRS, informs you that you have failed to submit required bank account details. You are asked to fax back a form that requests your EIN, bank information, and officer signatures.

Read 2016 Identity Theft and Your Taxes Here

Notify the IRS
If you receive a tax-related phishing email, do not click on the links or open any attachments. Forward the email to phishing@irs.gov or call the IRS at 800-829-1040.

Read 2016 Identity Theft and Your Taxes Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Consumer Credit-Protection and Management

Victims of Credit Card Fraud or Identity Theft

Report the crime to the police immediately. Get a copy of the police report or case number. Credit card companies, the bank, or insurance companies may ask for the reference to verify the crime.
Immediately contact the credit card issuers. Get replacement cards with new account numbers and ask that the old account be processed as “account closed at consumer’s request” for credit record purposes. Follow up with a letter to the credit card company that summarizes the request in writing.
Call the fraud units of the three credit reporting bureaus to report the theft. Ask that the accounts be flagged. Also, add a victim’s statement to the report requesting contact to verify future credit applications

Read 2016 Consumer Credit Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Health Care Reform-Individual Insurance Requirement

Tax Consultation Preparation and Representation

Requirement to Have Health Insurance
Beginning January 2014, nonexempt U.S. citizens and legal residents are required to maintain minimum essential coverage. Minimum essential coverage can include government-sponsored programs, eligible employer-sponsored plans, plans in the individual market, grandfathered group health plans, and other coverage as recognized by the Secretary of Health and Human Services (HHS), in coordination with the Secretary of the Treasury. Government-sponsored programs include Medicare, Medicaid, Children’s Health Insurance Program, coverage for members of the U.S. military, veteran’s health care, and health care for Peace Corps volunteers.Eligible employer-sponsored plans include governmental plans, church plans, grandfathered plans, COBRA coverage, retiree coverage, and other group health plans offered in the small or large group market within a state.

Read the entire communication here.Health Care Reform Individual Insurance Requirement

Health Insurance Portability and Accountability Act (HIPAA)
Excepted Benefits
Minimum essential coverage does not include coverage that consists of certain HIPAA excepted benefits. HIPAA excepted benefits include:
1) Coverage only for accident or disability income insurance,
2) Coverage issued as a supplement to liability insurance,
3) Liability insurance, including general liability insurance and automobile liability insurance,
4) Workers’ compensation or similar insurance,
5) Automobile medical payment insurance,
6) Credit-only insurance,
7) Coverage for on-site medical clinics, and
8) Other similar insurance coverage, specified in regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits. Other HIPAA excepted benefits that do not constitute
minimum essential coverage if offered under a separate policy, certificate, or contract of insurance
include long-term care, limited scope dental and vision benefits, coverage for a disease or specified illness,
hospital indemnity or other fixed indemnity insurance, or Medicare supplemental health insurance.

Read the entire communication here.Health Care Reform Individual Insurance Requirement

Any accounting, business or tax advice contained in the Tax E Man Blog or http://www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

Read the entire communication here Health Care Reform Individual Insurance Requirement

Services We Provide Include
◾Income Tax Preparation for individuals and small businesses
◾ Electronic filing of all Federal and State returns with direct deposit of refunds
◾Scheduled electronic payment of balance due
◾Income Tax Consulting
◾IRS Tax Representation
◾Unified Tax Returns
◾ Amended Tax Returns

“Empowering clients thru education, a stress free transaction and an excellent service experience.”

Education Tax Benefits

Education Tax Benefits

If you pay tuition, fees, and other costs for attendance at an eligible educational institution for yourself, your spouse, or your dependent, you may be able to take advantage of one or more of the education tax benefits.You can claim more than one education benefit in a tax year as long as you do not use the same expenses for more than one benefit.

Exception: Qualified expenses used to claim education benefits can also be used to eliminate the 10% penalty on premature IRA distributions.

You may claim only one of the following education tax benefits for the same student per year: tuition and fees deduction, American Opportunity Credit, or Lifetime Learning Credit.

Read the entire communication here Education Tax Benefits

Education Deductions.

Deductions reduce the amount of income subject to income tax. Deductions for education expenses include:

• Tuition and fees deduction up to $4,000 from gross income. Income limitations apply.

• The provision for deducting tuition and fees expired for tax years after 2013.

• Student loan interest deduction up to $2,500 from gross income. Income limitations apply.

• Business deduction on Schedule C or F. You can deduct the cost of education related to the business or farm activity.

• Miscellaneous itemized deduction on Schedule A, subject to the 2% AGI limitation. You can deduct the unreimbursed cost of education required to keep your current job or maintain and improve skills needed for your job. You cannot deduct the cost of education that qualifies you for a new trade or business.

Read the entire communication here Education Tax Benefits

Services We Provide Include

Income Tax Preparation for individuals and small businesses
Electronic filing of all Federal and State returns with direct deposit of refunds
Scheduled electronic payment of balance due
Income Tax Consulting
IRS Tax Representation
Unified Tax Returns
Amended Tax Returns

“Empowering clients thru education, a stress free transaction and an excellent service experience.”

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Category: Uncategorized

Saving For Retirement

Read 2016 Saving for Retirement Here

Read 2016 Saving for Retirement Here

Saving For College

$ 5,500 Interest X $8,000 Qualified Expenses/$10,000 Redemption Proceeds=$4,400 Tax Free Interest

Read 2016 Saving for College Here

Read 2016 Saving for College Here

College Financial Aid Planning

Financial Planning Guide

Begin With The End In Mind-Tax Planning 2016 and Beyond

Taxpayers Who Receive an IRS Notice

Identity Theft and Your Taxes

Consumer Credit-Protection and Management

Health Care Reform-Individual Insurance Requirement

Education Tax Benefits

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